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The Indian wife of the UK Chancellor of the Exchequer has now said that while she will in future pay UK tax on her foreign income, she will retain her non-domiciled status.

Is there any choice here? The question of domicile, as I understand it is not one of form but of fact. Domicile, as I understand it, is a common-law status which is determined by the circumstances. It is not something for which one can apply, or discard when no longer needed.

There are two types of domicile - domicile of origin (that with which one is born) and domicile of choice, determined by a multiplicity of one's life choices concerning where to live etc. And most importantly one's future intentions - as expressed in such things as what nationalities, residence statuses etc that one has acquired.

And presumably, if she now begins to file tax returns as a UK domiciled person, it will add to the evidence that she has lost her Indian domicile - will it not?

But having said that - I don't think she has said she will file domiciled returns - merely that she "will pay UK tax on her overseas income". Anyone can pay more tax that they need pay - one can I assume voluntarily choose to do that.

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  • "It is not something for which one can apply, or discard when no longer needed." - According to reports, "Under non-dom rules, Murty previously paid £30,000 a year for the right not to pay UK tax on her overseas income."
    – Laconic Droid
    Commented Apr 9, 2022 at 14:51
  • @LaconicDroid She will not have paid that "for the right not to pay tax on her overseas income", but for the privilege of filing a non-domiciled tax return. There are plenty of people in the UK who have as strong or stronger case for claiming non-dom status, but do not do so, because the amount of tax that would be saved would be far less than £30k per annum. Typically think of a Filipino nurse, working in the NHS. Let's say she owns some modest property in Manila, left to her by her parents, from which she derives a rent of about £2k per annum. Though she is legally non-domiciled (cont)
    – WS2
    Commented Apr 9, 2022 at 15:24
  • BFwd - she is prohibited from filing a non-dom return. And technically she is supposed to declare the rents and pay UK tax thereon - even though she has every intention of returning to the Phillippines to live. It is an outrage - and an illustration of the way that wealthy people are favoured over those who work for a living. But Filipino lady remains, under common law, non-domiciled - her intention being to return to the land of her birth. She simply cannot exercise that right unless she pays £30,000.
    – WS2
    Commented Apr 9, 2022 at 15:26
  • The question of domicile is defined differently for different purposes. I would expect that for taxation, it is defined by statute rather than relying on any common-law definition.
    – phoog
    Commented May 9, 2022 at 16:28
  • @phoog I don't think there is any clear statutory definition, though there is now an overall rule limiting the number of successive years in which a non-domiciled return can be made. Many years ago I did have a little experience of the matter, in a professional capacity. The problem is that one's long-term intent plays an important part, which is not something easily governed by rule. I may be wrong, but I feel sure that cases that reach court tend to be decided on precedence.
    – WS2
    Commented May 9, 2022 at 18:42

1 Answer 1

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Tax law is complicated

Being domiciled for tax purposes is different from residence or citizenship.

If you are domiciled in the UK then you must pay UK taxes on all your income.

If you are not domiciled (and Ms Murty isn’t), you can choose to pay UK taxes on all your income.

Why would you do that?

Well, according to this report, there is an old tax treaty between the UK and India that says that if you pay income tax in the UK, you can choose whether to pay inheritance tax in either the UK or India. And India abolished death duties. So, by paying tax in the UK now on income, she avoids much larger taxes on her assets when she dies.

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  • 1
    1. Domicile is different to both residence and citizenship. If you are non-resident you do not pay tax in the UK, even if you remain domiciled. 2. Ms Murty has said she intends "to retain her non-dom status" - so presumably she will continue for the moment to file non-dom returns. So the only way, as I see it, she can pay UK tax on "an arising basis" (as she describes it) is to do so voluntarily - by way of donation. But who in the world will ever verify that she has paid the appropriate amount - certainly not HMRC. As far as they are concerned she will have filed a non-dom return.
    – WS2
    Commented Apr 9, 2022 at 11:23
  • 2
    Does this actually answer the question? It explains the implications of Ms. Murty's tax position, but it doesn't address whether she has other options, which is what I understand the question to be asking.
    – bdb484
    Commented Apr 9, 2022 at 13:49
  • According to what I read, being non-domiciled she has the free choice of paying £30,000 in the UK and the appropriate taxes on her Indian income in India, or to pay appropriate taxes on her Indian income in the UK. Someone with only £75,000 Indian income would obviously pay in the UK because it is cheaper. My understanding is that she said she would pay taxes in the UK in the future, NOT that she would give up non-domiciled status. In that case she could decide every year where she pays taxes. And of course what matters is what she tells HMRC, not what she tells some journalist.
    – gnasher729
    Commented May 9, 2022 at 10:41
  • @gnasher729 Anyone with income arising in India may well have to pay tax in India even though they are resident in the UK. If such a person files a fully domiciled return in the UK, they will most likely be able to claim relief under a double-tax treaty between the UK and India - assuming there is one. But the big advantage to non-doms is that they can choose to invest their money in places where there is no income tax - and so their profits/dividends escape tax altogether.
    – WS2
    Commented May 9, 2022 at 18:58
  • @WS2 Just from what I read, the tax on dividends is supposedly 10% in India and about 39% in the UK (for multi-million pound dividends), so that is enough reason to pay tax in India.
    – gnasher729
    Commented May 9, 2022 at 22:12

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